Vacant possession and how to satisfy a break clause
Overview
The recent case of Capitol Park Leeds Plc v Global Radio Services [2020] EWHC 2750 highlights the requirement for tenants to follow the strict conditions set out in a break clause. In deciding whether the tenant had properly availed of the break clause, the court considered what was meant by vacant possession in the context of the lease and whether it had been achieved.
What is the purpose of a break clause?
A break clause performs much like it sounds. It is a 'break' in a lease or an early termination. Break clauses may form part of a fixed-term lease, and be exercisable by the tenant or the landlord. It provides a certain amount of flexibility under the lease by permitting early termination on either a specified date or at any time during the term. The obvious benefit is that tenants who are burdened by lengthy terms can terminate the lease early if circumstances change or the tenancy is no longer viable.
Background of case
The landlord in this instance was Capitol Park Leeds Plc, with Global Radio Services as the tenant. The lease was due to be terminated in 2025, however, Capitol Park wished to avail of a break in the lease, on the specified date of 12 November 2017.
The tenant attempted to limit its dilapidations, by undertaking extensive interior work on the property which included removing many of the building's fixtures such as office and emergency lighting, radiators and tiles. Unfortunately, the replacement of these fixtures failed to materialise as the tenant halted work with the aim of settling the dilapidations liability with the landlord. The negotiations proved unfruitful, leaving the property in an in-between, empty state.
The tenant argued that:
- leaving the property in this state, on the date specified, allowed it to comply with the requirement in the break clause and provide vacant possession.
- should the court view the tenant as having failed to provide vacant possession, the dilapidations discussions between the parties created an estoppel, which would not permit the landlord to rely on the rules of vacant possession.
The decision
The court quickly determined there to be no agreement between the parties and therefore no estoppel.
On the vacant possession issue the court concluded that the tenant's construction work left the premises "an empty shell of a building which was dysfunctional and unoccupiable". The definition of 'Premises' under the lease, included many of the fixtures that had been removed by the tenant during construction. Upon delivering vacant possession, the tenant had agreed that there should be no significant barriers to the property's use on the date of the break. The court found that the tenant failed to vacate the premises as line with the lease and that it had violated the rule of vacant possession.
Break clause takeaways
This case highlights the importance of complying with the exact conditions of a break clause when attempting to determine a lease, no matter how trivial or seemingly inconsequential. Specifically, this case should act as a warning to tenants when comply with the lease in the strictest sense.
Should a tenant seek to carry out dilapidations work before exercising a break clause, it should always refer to the lease in respect of it obligations concerning 'fixtures and fittings' and the definition of Premises.
Parties to leases should always seek legal advice before exercising its right to trigger a break clause.
If you have any questions or need advice following this latest update, please do not hesitate to contact Stuart Nevin, Associate or any member of the ALG Belfast Litigation team.
Date published: 25 November 2020